Home Loan
Home Loan in India
EMI breakdown, amortisation schedule, prepayment, balance transfer, and tax benefits — all in plain English. No jargon. No fine print.
How Home Loan EMI Works
A home loan EMI (Equated Monthly Instalment) is the fixed amount you pay each month to repay the loan. Each EMI has two parts — principal (the amount you borrowed) and interest (the bank's charge). With the daily reducing balance method used by most Indian banks, the interest is calculated on the outstanding principal each day, so your principal reduces with every payment you make.
Worked example — ₹50 lakh home loan at 8.5% p.a. for 20 years
- Loan amount: ₹50,00,000
- Interest rate: 8.5% p.a. (monthly rate = 0.7083%)
- Tenure: 20 years (240 months)
- Monthly EMI: approximately ₹38,600
- Total amount paid over 20 years: approximately ₹92.6 lakh
- Total interest paid: approximately ₹42.6 lakh
EMI calculated using the standard formula: E = P × r × (1 + r)n / ((1 + r)n − 1), where P = principal, r = monthly interest rate, n = number of months.
Principal vs Interest Over Time
In the early years of a home loan, most of your EMI goes toward paying interest — not principal. This is called front-loading. By year 15 of a 20-year loan, the split shifts significantly toward the principal.
An amortisation schedule shows exactly how much of each EMI goes to principal and interest month by month. Most lenders provide this schedule after the loan is disbursed. Here is a simplified illustration:
| Year | EMI going to principal | EMI going to interest | Outstanding balance |
|---|---|---|---|
| Year 1 | ~₹7,600/mo | ~₹31,000/mo | ~₹48.5 lakh |
| Year 5 | ~₹11,700/mo | ~₹26,900/mo | ~₹43.8 lakh |
| Year 10 | ~₹18,200/mo | ~₹20,400/mo | ~₹34.2 lakh |
| Year 15 | ~₹28,500/mo | ~₹10,100/mo | ~₹21.4 lakh |
| Year 20 | ~₹38,200/mo | ~₹400/mo | ~₹0 |
Figures are approximate, rounded to the nearest hundred, based on ₹50 lakh at 8.5% p.a. reducing balance. Actual schedules vary by lender and exact repayment date.
Prepayment
Prepayment means paying more than your regular EMI — either as a lump sum or by increasing your monthly EMI amount. Because most home loans use daily reducing balance, any extra payment goes directly to reducing the principal, which cuts future interest charges.
When prepayment is most valuable: Early in the loan tenure, the interest portion of your EMI is highest, so extra payments have the biggest impact. A lump sum of ₹5 lakh in year 3 saves far more in total interest than the same ₹5 lakh in year 15.
Floating vs fixed rate: Floating-rate home loans in India cannot legally carry a prepayment penalty under RBI rules. Fixed-rate loans may charge 1–2% of the outstanding amount as foreclosure fee — check your loan agreement.
Example: ₹5 lakh prepayment in year 3
On a ₹50 lakh, 20-year loan at 8.5%: prepaying ₹5 lakh as a lump sum in year 3 reduces your total interest by approximately ₹8–9 lakh and shortens your tenure by 2–3 years. Use the EMI calculator to model your own numbers.
Balance Transfer
A home loan balance transfer lets you move your outstanding principal to a new lender offering a lower interest rate. The new lender pays off your old loan, and you continue repaying the new one at the lower rate.
Transfer makes sense when: the new rate is at least 0.75–1% lower than your current rate, you have more than 5 years remaining on the loan, and the processing fee (typically 0.5–1% of the outstanding amount) does not wipe out the interest savings.
Break-even calculation: If your outstanding is ₹30 lakh and you switch from 9% to 8% — the 1% difference saves approximately ₹3 lakh over the remaining tenure. If the transfer fee is ₹30,000–45,000 (0.5–1% of ₹30 lakh), the net benefit is ₹2.55–2.7 lakh. Run the numbers with our EMI calculator before deciding.
Related pages
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Frequently asked questions
How is home loan interest calculated in India?
What tax benefits does a home loan give?
When does it make sense to prepay a home loan?
What is a home loan balance transfer and should I do it?
Sources
Sources: Reserve Bank of India (RBI) home loan guidelines (rbi.org.in) · Income Tax Act 2025 Sections 24(b), 80C, 80EE, 80EEA · National Housing Bank (NHB) guidelines · Bank websites (SBI, HDFC, ICICI). Rates verified 2026-10-08. Last reviewed by FinWiz24 Research Desk.